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King dollar loses its crown as $94.50 holds as a firm resistance.

It is very likely that without a lot of the financial support being written into law for 2022, that the equities markets correct lower for longer until we get back to fair value. The problem is that the markets tend to overshoot to the upside and then go further than is truly necessary on the way back down. If there was exponential US government spending, there would be the possibility of GDP rising exponentially too. Unfortunately, neither are likely to happen.

Market Wrap

In 2021, the US economy grew by more than $800 billion to surpass $7.7 trillion, up from $6.9 trillion in 2020. It is noteworthy that since March 2021 fiscal flows have decreased each month, and with the fiscal year ending yesterday, the GDPNow forecast shows a reduction in US GDP from 3.2% to 2.3% for Q3. In conjunction with 3 consecutive weeks of rising unemployment claims, the decline in equity prices is beginning to make more sense.

Political negotiations surrounding the current pieces of legislation have not made any real progress. Although US House Majority Leader Hoyer announced the House Democrats would meet again today to discuss the current agenda.

The ISM Manufacturing PMI in September 2021 rose to 61.1 from 59.5 in August, a second straight increase and the highest reading since 1983.

The good US data today led me to think the US dollar might find a bid, but as the heatmap shows 'King dollar' had been knocked off the throne today, with the pound taking the top spot. It appears that the 5-wave pattern I had identified towards the end of September, coupled with the resistance level of $94.50 as a confluence, is holding. There are times when technical analysis gets it right despite fundamentals suggesting the opposite.

On an annual basis, the Federal Reserve's preferred measure of inflation was as expected; however, the reading on a monthly basis was higher than expected. According to the US Bureau of Economic Analysis, personal consumption expenditures (PCE) in the United States increased by 0.8% in August compared to the previous month, beating market expectations. The figure is now $130.5 billion higher than it was the month prior. Personal income was up by $35.5 billion, constituting a 0.2% monthly gain. At the same time, disposable personal income saw a 0.1% or $18.9 billion rise.

The morning's analysis regarding the EURGBP worked out as planned. The decent resistance from the key 0.8600 level today was the setup needed to look for short trades.

On Thursday I talked through reasons why I thought the GBPUSD would rise and which levels of support to look for. The EURGBP and GBPUSD can move inversely to each other, and this week has been a good example of that.

The GBPUSD price action didn’t follow exactly how I imagined but the outcome remains the same and the risk would have been controlled to the downside with a stop loss below where the idea had become invalidated.

The other potential trade highlighted yesterday was long-off support, in Silver. Today’s price action to $22.50 has found some resistance from the little balance area created in the last two weeks of September, but the breaking of yesterday’s high and a strong close today is a good sign for the swing traders in precious metals.